Description:

The paper relates that China has ignited a controversy in the rare earth metals market because it was using its dominant position in the market as a political weapon, most notably against Japan. The paper explains why the market for rare earth metals has become dominated by China and shows how China's monopoly position is what allows it to manipulate supply and introduce an element of unpredictability into the rare earth metals market. The paper considers the implications of China's moves and predicts that they will have the long run impact of bringing other countries into the market for rare earths. Furthermore, the paper points out that while China's intent may have been to limit exports in order to both drive up the price and to support its own electronics manufacturing industries, new players entering the market will only reduce its ability to control the price of rare earths or to achieve strategic ends.

From the Paper:

"In recent weeks, China ignited a controversy in the rare earth metals market because it was using its dominant position in the market as a political weapon, most notably against Japan. The events cause a significant controversy, and introduced the world to the rare earth metals market. At present, China owns 96% of the global market for rare earth metals (Doggett, 2010).
"There are 17 so-called rare earth metals, and demand for many of these metals is high. They are used in a wide range of modern products, from batteries, electric generators, smartphones and guided missiles. Thus, they are in demand from a wide range of countries. While China dominates the world market, it only holds 37% of rare earth metals. The US, Canada and Australia each hold significant percentages of the global supply (Doggett, 2010). The US once dominated trade in rare earths, but that trade has shifted to China. For its part, China has reduced exports of rare earths by approximately 40% in the past seven years (Lifton, 2010). There are rumors that China wants to ban exports of certain rare earths by 2015, essentially using its dominance of the rare earth market as a geopolitical weapon (Der Spiegel, 2010)."